I am a Senior Political Contributor at Forbes and the official 'token lefty,' as the title of the page suggests. However, writing from the 'left of center' should not be confused with writing for the left as I often annoy progressives just as much as I upset conservative thinkers. In addition to the pages of Forbes.com, you can find me every Saturday morning on your TV arguing with my more conservative colleagues on "Forbes on Fox" on the Fox News Network and at various other times during the week serving as a liberal talking head on other Fox News and Fox Business Network shows. I also serve as a Democratic strategist with Mercury Public Affairs.

The Bomb Buried In Obamacare Explodes Today-Hallelujah!

(Note to readers: This article was originally posted in December of 2011 and gained quite a large following at that time. The story now appears to have new resonance as a result of last week’s Supreme Court decision on Obamacare. While my thoughts as expressed in this piece remain the same, I wanted readers to have the opportunity to place them in context in terms of time and space. REU)

I have long argued that the impact of the Affordable Care Act is not nearly as big of a deal as opponents would have you believe. At the end of the day, the law is – in the main – little more than a successful effort to put an end to some of the more egregious health insurer abuses while creating an environment that should bring more Americans into programs that will give them at least some of the health care coverage they need.

There is, however, one notable exception – and it’s one that should have a long lasting and powerful impact on the future of health care in our country.

That would be the provision of the law, called the medical loss ratio, that requires health insurance companies to spend 80% of the consumers’ premium dollars they collect—85% for large group insurers—on actual medical care rather than overhead, marketing expenses and profit. Failure on the part of insurers to meet this requirement will result in the insurers having to send their customers a rebate check representing the amount in which they underspend on actual medical care.

This is the true ‘bomb’ contained in Obamacare and the one item that will have more impact on the future of how medical care is paid for in this country than anything we’ve seen in quite some time. Indeed, it is this aspect of the law that represents the true ‘death panel’ found in Obamacare—but not one that is going to lead to the death of American consumers. Rather, the medical loss ratio will, ultimately, lead to the death of large parts of the private, for-profit health insurance industry.

Why? Because there is absolutely no way for-profit health insurers are going to be able to learn how to get by and still make a profit while being forced to spend at least 80 percent of their receipts providing their customers with the coverage for which they paid. If they could, we likely would never have seen the extraordinary efforts made by these companies to avoid paying benefits to their customers at the very moment they need it the most.

Today, that bomb goes off.

Today, the Department of Health & Human Services issues the rules of what insurer expenditures will—and will not—qualify as a medical expense for purposes of meeting the requirement.

As it turns out, HHS isn’t screwing around. They actually mean to see to it that the insurance companies spend what they should taking care of their customers.

Here’s an example: For months, health insurance brokers and salespeople have been lobbying to have the commissions they earn for selling an insurer’s program to consumers be included as a ‘medical expense’ for purposes of the rules. HHS has, today, given them the official thumbs down, as well they should have. Selling me a health insurance policy is simply not the same as providing me with the medical care I am entitled to under the policy. Sales is clearly an overhead cost in any business and had HHS included this as a medical cost, it would have signaled that they are not at all serious about enforcing the concept of the medical loss ratio.

So, can private health insurance companies manage to make a profit when they actually have to spend premium receipts taking care of their customers’ health needs as promised?

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

I have been practicing medicine for 30 years. Health Insurance is a legal Madoof scheme and you know it, where can an industry cover you for decades profit handsomely and then when you REALLY are going to cost them we get stuck with 85% of the tab. Switzerland has done this healthinsurer 85% rule for decades and they are still in buisness. The Swiss barely approved this system decades ago by 1 % now over 90% want to keep it. Let the old players leave if there’s not enough profit.

Obama took more insurance lobby money than any senator I’ve heard nurses call Obama care racketeering… can only hope Obama and his cronies go to prison…racketeering for the rich that will kill the lower class

Ha! Then you don’t know much about me do you? Not only have I been in business to make a profit, I’ve run a NYSE public company. Go figure. As a result, I very much do know how health insurance costs affect the bottom line, which is part of what drives me to the conclusions I reach. As for understanding the insurance business, I suspect the American health insurance companies might beg to differ with you and wish I understood it far less! But hey, it feels kind of good to be called naive..means that there is still time to learn even more.

pure government sponsored racketeering…Obama took more insurance lobby money than any one and is in no way to insure the cost won’t go up we all buy gas and look at the price he’s just put a gun to all our heads and said buy my product or you go to jail…IRS has always had that power….Obama is the private insurance industry…and all his minions get rich

You say “it will be left to the only bank large enough to become the nation’s health care insurer – the government”. The government has shown time and time again that they don’t know what they are doing -especially when there is money involved. The government has been spending money that it does NOT have.

There is a great question. On one hand, when private corporations, an entire industry, dangers the foundation of the nation’s economy (the taxpaying policy holders) with policies which sends 100,000s of families into bankruptcies, foreclosures, poverty, the government should act to not only protect the overall economy, but the citizen. This is the government for the people, by the people, not the corporation. On the other hand, when a fringe group catches fire for a brief time in political history, you can see where that precedent could be harmful to the overall economy. I support that no industry can use that form of mafia capitalism that destroys the nation from within. Maybe I am old school, but patriotism should be a requirement for business as well as the individual. The idea that loss of consumers due to poor service or performance can always be offset by continual increased premiums is a suicidal plan for that industry. And no one desires the extermination of health insurance. Just fairness, live up to a contract, and do what you are in business to do.

Great point about the airline industry. A few important points though; 1.) The 1980′s was the most dangerous time in America to fly a commercial airline (post de-regulation) 2.) Southwest Airlines sustains profitability when most others can’t, because they have become is essence, an energy trader (among other commodities) 3.) Historically, Health Insurance was a product initially intended to offer an individual financial protection. As the industry grew, it morphed into Health Maintenance/Prevention and ultimately into the role of a gatekeeper. Today, it offers neither financial protection (see bankruptcy statistics) or health maintenance (see outcomes).

No one ever mentions how/why medical care costs have increased exponentially now. The gov used to give hospitals $3 mil in January for the uninsured and it was gone by March. In speaking to a VP of a hospital 30 years ago…his thoughts were “because of insurance.” The bill was a blank check to the provider and there were never any checks or balances on fees. It is America and one must hit that dream. It reminds me of the housing fiasco. Working in Medical Records we were the hub (I say we because more than half went on layoff- gov. orders, paper reduction act) coding, distributing info. In fact the gov would and could often break into our system and freeze it, open access, pissed me off. I have seen the pie graphs and expected income from the gov for Medicare, etc., and it did not look good by 2013. Also, if one is hospitalized and returns two days later…they will not pay one penny to the provider for the previous stay. A lot of changes! I hated coding for two Tylenol turned into a $40 fee when it hit the business office. Made me want to take a trip to the BURN UNIT.